LIAM 2022 Budget Wish List

(Issued by the President of Life Insurance Association of Malaysia, Ms Loh Guat Lan in conjunction with the tabling of Budget 2022 by the Minister of Finance Malaysia scheduled on Friday, 29 October 2021)

Kuala Lumpur, 11 October 2021: In conjunction with the upcoming tabling of the 2022 Budget by the Minister of Finance Malaysia, YB Tengku Dato' Sri Zafrul Tengku Abdul Aziz, LIAM wishes to reiterate the industry’s wish list in promoting financial inclusion and increasing awareness on the importance of financial protection among the Rakyat.

The global pandemic has affected many countries worldwide including Malaysia. The Government has taken various proactive measures and strategies in managing the COVID-19 impact on the economy and the well-being of the Rakyat.  The industry lauds the initiative by the Government in implementing the National Recovery Plan as a catalyst for the economic growth to help the country bounce back from the pandemic with the reopening of the economic sectors and the successful implementation of the National Immunization programme.   

In the spirit of “Keluarga Malaysia”, for the Budget 2022, the life insurance industry has put forward four proposals that would assist the Rakyat in enhancing their well-being by encouraging Malaysians to plan for their protection needs and enhancing coverage among the B40 and the Malaysian Employees

Proposal 1: To include medical insurance premium in the tax relief of RM8,000 which is for medical expenses for self, spouse and children;

OR

Increase the tax relief for education, medical and health insurance from RM3,000 to RM6,000;

We would like to propose that tax relief for medical and health insurance premiums be increased by one of the following options:

  1. To allow the current tax relief of RM8,000 for medical expenses on self, spouse and children for serious diseases be extended to include medical insurance premiums; or
  2. To increase the current combined tax relief of RM3,000 ( for medical and health insurance premiums and premiums for education insurance) to RM6,000.

The rationale behind this proposal is firstly, it will lift the burden of potentially large medical expenses from the taxpayer due to the pooling of risk. Secondly, the cost of medical expenses typically increases with age and taxpayers are utilizing their current income to fund for their future long term medical needs.

The cost of medical insurance for an average family of two adults and three children is about RM2,500 per annum at the lower end. Hence, there is only RM500 savings for premium per annum for this family to support the education policy of the three children, which is not enough.

Given the importance of having health insurance for Malaysians, the tax relief for this type of insurance plan should be increased.

The life insurance industry plays an important role in encouraging Malaysians to plan for their protection needs in medical and health, and education of their children. In 2020, the life insurance industry paid out a total of RM11.6 billion in benefit payouts, where a significant amount from the payouts were for medical insurance, which amounted to RM4.5 billion. Hence, medical insurance is very important in the management of healthcare cost among policyholders.

By increasing the tax relief for medical and health insurance premiums, families do not have to compromise the purchase of education insurance for their children.  Education for the children is something that every parent should endeavor to secure for their child at all costs. Hence, an education insurance policy is important as it serves as a savings tool to provide an amount for education costs when the children reach 18 years or above to enter college. Failing to prepare for the children’s education could prevent them from reaching and maximizing their full potential.

Proposal 2: Increase personal tax relief for life insurance premiums from RM3,000 to RM5,000;

The COVID-19 pandemic situation in the country has made everyone realize on how uncertain life can be and the needs to protect oneself and our loved ones financially as a safety net in the event of any unforeseen circumstances or the passing of a breadwinner in a family.

Having a life insurance policy is an important part of financial planning because it protects you and your loved ones from the costs associated with accidents, disability, illness and death.  A life insurance policy can help provide a family with a lump sum of money to pay off mortgage debt, loans and bills, hence eliminating financial stress. 

For a breadwinner, it is always a necessity for them to protect themselves if one day they are unable to provide for the family.  Life insurance will come in handy as they can help one’s family to sustain their lifestyle in the event of the demise of the breadwinner or being diagnosed with total permanent disability which prevents them from working and earn for the family.

LIAM would like to recommend to the Government to increase the current limit of personal Tax Relief for Life Insurance Premium from RM3,000 to RM5,000

Proposal 3: Waiver of 6% Service Tax on Group Employee Insurance Scheme

LIAM would like to propose that the 6% service tax on Group Employee Insurance Scheme be abolished.  This will encourage employers to insure their staff under a Group Employee Insurance Scheme and thereby increasing the penetration rate of workers.  Based on published statistics, less than half of employees is being covered by any form of group insurance.  This leaves a significant insurance gap that needs to be closed, to extend the insurance safety net to as many Malaysians as possible.

Group Insurance Coverage

2016

2017

2018

2019

2020

Number of lives insured

5,349,084

4,902,657

5,682,823

6,061,813

6,159,993

Number of employed

14,200,000

14,500,000

14,800,000

15,100,000

14,960,000

Proportion of employees insured

38%

34%

38%

40%

41%

Source:

1) Department of Statistics Malaysia

2) LIAM Statistics of Total Business in Force

By having more Malaysians covered under private group medical insurance, this will help to lessen the burden of the public healthcare system, from both financial and capacity angles.

An illustration on the potential financial savings, based on 2020 data:

 

The illustration assumes that we successfully increase the proportion of employees to be insured under group medical insurance schemes. Scenario A assumes an uplift of 10% (equivalent to additional 1.5 million lives), whilst Scenario B assumes an uplift of 20% (equivalent to additional 3.0 million lives). These assumptions are reasonable, in comparison to the group insurance penetration rate of around 100% for markets such as Singapore and Hong Kong, where there is no or negligible additional tax burden for group insurance.

Depending on the future cost of healthcare, which we have assumed the average hospitalisation claim cost to range between RM4,000 – RM6,000, this can potentially help the government to save between RM598m – RM1.8 billion per annum, in the form of reduced public healthcare spending.

The insurance industry is well-positioned and in full alignment to support the government in providing insurance safety net for all Malaysians, especially the B40 group. This is in line with the national agenda of increasing insurance penetration rate. To be more effective in playing our part, we seek the government’s agreement to waive the Service Tax on the group insurance scheme. This is critical in encouraging higher take-up rates by the employers, for the benefit of their employees, and in turn, help to reduce the burden on the public healthcare system.

There will be three main prongs of benefits:

1. Encourage more employers to take up group insurance for their employees, as premium affordability is a key factor for purchase.

2. Help to reduce businesses’ operating costs, while encouraging SMEs to keep their insurance coverage.

3. Help to reduce burden of the public healthcare system

Proposal 4: Extension of RM50 Perlindungan Tenang Voucher Programme for B40 for another year i.e from 2022-2023

In Budget 2021, the Government introduced the Perlindungan Tenang Voucher (PTV) Programme to provide better social protection for the BPR recipients. Under this programme, eligible BPR recipients will be given a RM50 voucher as financial aid to purchase Perlindungan Tenang products.

We would also like to thank the Government for the successful launch of the Perlindungan Tenang RM50 Voucher (PTV) Programme on 30 September 2021, involving the first batch of 3.6 million BPR recipients from the household category.  Subsequently, the PTV programme will be made available to other categories of BPR recipients at a later date.  This noble initiative aims to expand the social protection among the B40 community in the country to enable them to purchase a Perlindungan Tenang product as a financial protection against key risks in life such as death, accidents, fire or other unfortunate events. 

This incentive is extremely encouraging for the BPR recipients as Perlindungan Tenang products have been specially developed to incentivize the youth, young families and B40 household segment to purchase life insurance. It is indeed timely for the BPR recipients to receive the RM50 voucher of Perlindungan Tenang as a form of protection during these uncertain times.

We hope the BPR recipients would take this opportunity to introduce financial planning in their families and this may be the first time that they are obtaining insurance or takaful coverage for their loved ones. These products are also intended to be suitable for Malaysians who are not currently covered by any form of insurance or takaful protection.  The guiding principles for these products are that they are affordable, easily accessible and provide a simple claims process. 

As the BPR recipients need time to learn and accept insurance/takaful protection as part of their family’s financial planning, we would like to propose to the Government to extend the RM50 Perlindungan Tenang Voucher Programme for another year i.e.  from 2022 to 2023. 

To instill the habit of securing insurance or takaful coverage as part of their social protection, having the second premium subsidized will be necessary especially as the recovery from COVID-19 remains uncertain. Otherwise, many of the BPR recipients are likely to discontinue their coverage and the long-term benefits of the programme will be lost. 

The availability of Perlindungan Tenang products is important in providing immediate temporary relief in the event of misfortune, able to access financial resources and having peace of mind knowing that financial relief is available in an easy and timely manner.

The industry hopes that by extending the incentive for another year, it would benefit majority of B40 households in the country.  Ultimately, as part of the insurance and takaful industry’s aspiration, the PTV Programme hopes to fulfil the nation’s financial inclusion agenda of achieving higher insurance penetration and household resilience among the population.

Conclusion

The life insurance industry plays an important role in various aspects of the Rakyat’s wellbeing, such as financial protection, financial accumulation, and healthcare funding. With proper advanced planning and the right tax structure, the private sector and the Rakyat can be incentivised to play a bigger role and form a public-private sector partnership with the Government in sharing the cost of various social economic benefits for the nation.

In this respect, we hope that these proposals put forward for the 2022 Budget can be implemented and would assist the Government in achieving the 3R objectives – to protect and drive recovery of lives and livelihoods for the people, rebuild resilience of the economy and catalyse socio-economic reforms towards creating a more sustainable, productive, and higher value-added economy.